Credit rating agencies and Shadow banking UPSC pre 2022

This question on Credit rating agencies was a medium-level question because it can be done using the Elimination technique.

Consider the following statements :

1. In India, credit rating agencies are regulated by the Reserve Bank of India.

2. The rating agency popularly known as ICRA is a public limited company.

3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(d) 1, 2 and 3

Tip

All the credit rating agencies in India are regulated by SEBI.

Solution- “B”

What is a Credit rating Agencies[CRAs]?

A credit rating agency is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. Wikipedia

CRAs were in news due to several reason

1. To address the issue of Shadow Banking SEBI tightened the Norms for CRAs.

What is shadow Banking?

It is a set of activities and institution, which operate partially or fully outside the traditional commercial banking sector.

They are not fully regulated by RBI.

Issues with Shadow banks

Their assets are risky and illiquid and if there is a bank-run-like situation then Shadow bank can not honour their obligation.

The same thing happened during the IL&FS crisis.

2.India has proposed the BRICS group to set up its own independent credit rating agency.

Because World’s top three credit rating agencies- Fitch, Moody’s and Standard & Poor are pro-US and EU so they do not give good ratings to Govt bonds of India, China, and Russia despite the economic growth so they have to give more interest.

ICRA is an independent and professional investment Information and Credit Rating Agency.

Comments

Indirect transfer UPSC pre 2022

This question was an easy question and deals with the Indirect transfer concept. it was easy because it was in regular news due to a decision by the Netherlands arbitration court in 2020-2021. The court has ordered the Indian government to pay $1.2 billion [more than 8 thousand crores] to Cairn energy for tax harassment . Due to this in 2021, the government came up with Taxation laws [Amendment], bill 2021. What are Taxation laws [Amendment], bill 2021? It was an amendment in taxation laws which was focused on ending the retrospective tax issue. In short it says that "if Indirect transfer of Indian asset occurred before May 28, 2012, then the Indian government will not demand taxes on it." If Income tax authorities had collected any taxes from such companies then the Indian government will refund the money to the victim company [with 0% interest]. However, the company need to drop all the cases against the India

Biofilms UPSC pre 2022

Biofilms UPSC Bacteria are small, Single-celled organisms that we can not see with our naked eyes. While we often think of them as individual free-swimming entities, these resourceful organisms can often be found in groups called Biofilms . Biofilms can also be understood as a social group of Bacteria. To build Biofilms bacteria produce a sticky material that works like glue, called the Biofilms matrix , that helps the bacteria stick to each other and to surfaces. Bacteria stick to each other and expose surfaces creating slimy coatings to protect them from environmental pressure.[the way family and friend help us in managing different stress] Because of their resilience , biofilms can thrive in many environments, including soil, Deep sea and Our food. For humans, Biofilms can be harmful and helpful depending on where they form and the types of Bacteria that live on them. Consider the following statements:- UPSC pre 2022 1. Biofilms c

Inflation-Indexed Bonds (IIBs) and Positive real Interest rate UPSC pre 2022

The question on Inflation Indexed bonds was Medium level question because it can be done using the elimination method. With reference to the Indian economy, what are the advantages of “Inflation-Indexed Bonds (IIBs)” ? [2022] 1. Government can reduce the coupon rates on its borrowing by way of IIBs. 2. IIBs provide protection to the investors from uncertainty regarding inflation. 3. The interest received as well as capital gains on IIBs are not taxable. Which of the statements given above are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 TIP No tax exemptions given on “Inflation-Indexed Bonds (IIBs)” Solution - A What is Inflation-Indexed Bond [IIB] ? A bond is a type of security . Inflation Indexed bonds interest rates are linked to the Inflation rate. For e.g. - Inflation Indexed National Savings Securities-Cumulative (IINSS-C) with Interest Rate = CPI + 1.5% Why do we need IIB?

Search This Blog